GHEI: Obamanomics still isn’t working

Latest economic news lacks holiday spirit

By Nita Ghei -
The Washington Times -
Wednesday, November 28, 2012

President Obama promised he’d put America back to work again. Four years into his presidency, things aren’t looking much brighter. It is a sign of the times that a fractional boost in the mood of shoppers is hailed as joyful news. Consumer confidence ticked up from 73.1 to 73.7 in November, according to the Advisory Board’s index, which was released Tuesday. While that’s the highest mark achieved in more than four years, it remains far below the 90 score seen in a healthy economy.

It’s likely holiday cheer — and a dip in global petroleum prices — contributed to the positive trend. The economy remains fundamentally stagnant otherwise. Uncertainty about what Washington is going to do to address the fast-approaching “fiscal cliff” and increases in the regulatory burden are souring hope for a robust recovery fueled by investment.

The Chicago Federal Reserve put out the most sobering data Monday. The Fed’s weighted average of 85 indicators of national economic activity (which goes by the acronym CFNAI) considers production, income, employment, personal consumption, housing, sales, orders and inventories. The national activity index is weighted so that a normal economy rates a zero and positive values show booming growth. For October, the index stood at -0.56 — just shy of the -0.7 score that signifies the economy is headed into recession.

Manufacturing output declined, production fell, inventories dropped, sales tanked, and consumption diminished. All together, 54 indicators were down. Housing starts were up to their highest level since July 2008, but even this does not generate hope as an indicator of a robust recovery. Housing permits declined, suggesting that the construction industry is not likely to experience a boom anytime soon.

Hurricane Sandy certainly played a role in lowering the production portion of the Chicago Fed’s index from its 0.0 level in September, but the fundamental problems in the economy remain. The three-month moving average CFNAI, which corrects for temporary effects such as Hurricane Sandy, has been in negative territory for the past eight months.

There’s little reason to expect the situation to improve. A recent report by the investment bank Credit Suisse found that almost a third of businesses are delaying investing in planned projects, pending a resolution to the fiscal cliff. Unemployment already is hovering around the 8 percent level, and that’s not going to change unless entrepreneurs are confident enough to expand operations and hire new help. Another reliable predictor of future economic health is durable goods orders, as these tend to grow before the rest of the economy. The Commerce Department found core durable goods orders (that is, excluding transportation and defense, which are extremely volatile) increased slightly in October, by 1.7 percent. Spending on durable goods, however, has been flat for the entire year — not an encouraging sign for economic growth.

A resolution to the fiscal cliff is necessary to end the uncertainty and enable businesses to plan ahead for the expenses they’ll be facing, but not just any resolution will do. Deals that increase taxes and fail to control runaway government spending will leave us no better off. A larger federal government and higher taxes will crowd out both private investment and spending. Obamanomics is all about expanding government and increasing the regulatory burden. As long as that theory holds sway in Washington, the smallest bit of good economic news will be worth celebrating.